FYI Blog

Do you know the golden rule of ethical fundraising – and why it matters?

Avalon was recently surprised to learn that one of the digital partners for a client based their fees on a percentage of revenue raised for a client.

I’ll start by saying I believe that leading a culture of principled decision-makers is more ethically robust than micromanaging a team of rule-followers. However, the “golden rule” for professional fundraisers is a rule worth following: We do not tie our compensation to campaign revenue. Never. Ever.

And that’s not just my opinion or part of the new employee training I conducted in my previous role as Avalon’s chief strategy officer. The Association of Fundraising Professionals explicitly tells us not to do this. There isn’t much wiggle room in the AFP code, which states that “Members shall not accept compensation or enter into a contract that is based on a percentage of contributions; nor shall members accept finder’s fees or contingent fees.”

The interesting thing about this rule is how counterintuitive it seems at first glance. Why wouldn’t fundraisers tie their compensation to contributions? If they’re doing a good job, shouldn’t revenue be higher? Not so fast…let’s look at this closely.

The AFP rule safeguards best practices for nonprofit management and protects donors from fraud. Specifically, their supporting FAQ outlines three principles behind the standard:

1. Support for a nonprofit organization in any form is a voluntary action for the public benefit.

2. The seeking or acceptance of charity revenues should not result in the personal benefit of any employees, contractor, or representatives of a charitable organization.

3. Donor attitudes can be unalterably damaged in reaction to undue pressure and the awareness that a commission will be paid to a fundraiser from his or her gift, thus compromising the trust on which charity relies.

In these principles, particularly #3, fundraisers should recognize a call to long-term stewardship of the programs they manage. In other words, fundraising is not the business of squeezing every dime out of today; rather, it is the business of positioning organizations for donor relationships and revenue to sustain the full arc of their mission.

In this spirit, I suggest a fourth, related principle:

Fundraisers who focus exclusively on short-term financials cannot reliably prioritize the strategic investing and relationship-building that nonprofits need to fulfill their missions.

Those of you in direct response can surely recall at least one organization that managed a bad year by slashing donor acquisition – only to struggle 3-5 years later when they had too few solid, retained donors to upgrade across the giving pyramid. The AFP rule against percentage-of-contribution compensation is an important safeguard against such short-termism. While it can’t guarantee that you won’t face tough decisions, it can protect you from undue influence or temptation as you chart your path. That in turn helps stabilize your nonprofit’s long-term financial health, and therefore its mission.

Fundraisers should watch closely for new trends that either nuance or defy this critical AFP standard. For example, new digital platforms for donation management wade into a grey area with volume-based pricing, particularly structures that privilege certain strategies or categories of donors. Commercial marketers expanding into the nonprofit sector may not understand or answer to the AFP or underlying principles of donors’ rights and strategic fundraising. Bigger picture, our culture’s fast rate of technological change, while exciting, will continue to disrupt old ways of work – with increasing speed and influence. We need to be ready.

The seasoned fundraiser’s role in this evolving landscape is to explore advances and opportunities, while continuing to bear the torch of best practice (ethical and otherwise). Know your organization’s risk tolerance and advocate for strategies that break new ground within those parameters. If you have hiring or procurement responsibilities, I hope you use the percent-of-contribution rule as one indicator of candidates’ broader grasp of strategic and ethical fundraising. Finally, if you serve on association boards or committees, please keep this issue on the table for nuanced debate. The entire nonprofit community looks to you for timely and relevant guidance – especially in the current (exciting!) fundraising environment, where the ground is ever-shifting.

Jennifer Phillips is principal at JLP Strategy, an executive coaching practice. She holds a Ph.D. in ethics from the University of Virginia, where she has also taught courses on the ethics of capitalism and business ethics in healthcare. Prior to founding JLP Strategy, she served as Avalon’s Chief Strategy Officer.